Advances in information technologies have pushed key E&P decision-makers to process greater amounts of data and information before making important capital investment decisions. The corporate planner is faced with an increasingly difficult task as the number of opportunities and the data associated with them has grown exponentially. The capital investment decision process demands greater speed and efficiency than ever before. Traditional capital investment planning and acquisition/divestiture work involved sorting through physical data rooms of seismic, production and economic data stored in a variety of paper copy and digital formats. The introduction of affordable high-bandwidth networks and fast data processors has allowed on-line data rooms, powered by application service providers (ASP) and web portals, to bring petroleum acquisition and divestiture to the desktop computer. Corporate and financial planners are able to employ increasingly advanced database and decision analysis software solutions to vastly improve the quality control and the speed of the investment decision process. Integrated software for real-time reservoir modeling, precise economic calculations and efficient portfolio optimization of diverse sets of exploration and production opportunities has become a reality. This paper will review the evolution of the capital investment decision process from the traditional corporate planning workflow to the latest application of software dedicated to reservoir data processing and economic analysis of world petroleum fiscal regimes. The ability to apply portfolio management techniques using sophisticated mathematical search and optimization algorithms to greatly increase the efficiency of the planning process will be explored. This paper will discuss the key success factors associated with the capital investment decision-making process in the E&P industry and will use a personal computer to analyze a set of oil and gas assets on-line in the context of choosing an optimal corporate portfolio. Introduction The new ‘Digital Economy’ with its associated advanced computing, networking and software technologies is changing the way that capital investment is allocated in the petroleum industry. The recent industry consolidation of the majors (ExxonMobil, BPAmoco and ChevronTexaco) and privatization of national oil companies (StatOil) has been driven by market pressures to deliver better shareholder returns and aggressively reduce existing cost structures in an environment of erratic commodity prices. Investor scrutiny and stock market volatility is at an all-time high as companies are analyzed under a microscope and punished when failing to ‘meet expectations’. This in turn has sparked an increase in liquidity for oil and gas assets as companies seek to improve their Return on Average Capital Employed (ROACE) by reallocating capital from bottom performing projects to those which offer more attractive returns. Electronic marketplaces have sprung up attempting to link industrial communities together to create ‘efficient’ markets where there is easy and free-flowing access to relevant information on oil and gas assets. Business performance indicators are driving the demand for more efficient utilization of human resources, technical data, investment capital and operating expenditures1.
Portfolio management has become an important aspect of oil and gas business planning to support the efficient allocation of capital. As oil and gas becomes more difficult and expensive to find, petroleum companies are looking to portfolio management for providing both a more streamlined business planning process and an advantage over the competition in the industry. However, portfolio management has traditionally been deployed at a corporate planning level and has often missed the opportunity to consider the operational reality at the asset team or regional level. Each capital investment decision must be consistently evaluated for its ability to contribute to the corporate strategy while maximizing the usage of available resources. The aim of this study is to show how an integrated portfolio management solution can provide benefits when used at every stage in the asset development life cycle (from exploration through to production and abandonment) as well as at different levels in the corporation (asset teams through business units to corporate planning) to drive more efficient and effective business planning. This robust, integrated approach to portfolio management will drive more efficient investment across the corporation. The methodology can be applied to business planning processes at the asset team, the business unit, and at the corporate level within any petroleum company. The first section provides the best practices in maturing opportunities as producing, development, and exploration properties are evaluated consistently in the context of the company portfolio. The second section of the study covers some specific examples in which the asset development plan is put together to create typical drilling and rig schedules with operational issues such as dependencies between assets and facilities resource constraints. The third section looks at various portfolio management techniques to define the long-term corporate strategy and bridge it with short-term operational constraints to determine an optimized portfolio. The study concludes with specific recommendations on integrated portfolio management practices at every level in the organization to ensure that the corporate strategy is aligned with available resources. This integrated approach to portfolio management will allow corporate planners to balance long-term strategic goals with operational constraints from the business unit down to the asset team. It will result in a more balanced and diversified portfolio and drive better decisions in the capital allocation process.
Portfolio management has become a mainstream discipline to support investment decisions and capital allocation plans for the oil and gas industry. With more than 70% of the top 50 oil and gas producers companies in the world applying it, the scope and reach of the subject is of vital importance. The aim of this study is to understand how portfolio management is applied in strategic planning and operational optimization, and how the combination of these exercises allows the strategic guidelines to permeate operational decisions. The first part of the study covers the best practices for the application of portfolio management when tackling strategic planning. Which are the critical business issues the exercise resolves, how to model the corporate long-term direction through measurable KPIs, and what key objectives companies pursue when allocating strategic capital. The second section provides some specific examples of ways in which portfolio management theory can resolve operational issues such as rig scheduling optimization, key human resources constraints, and facilities management optimization. The third section analyzes how the output of both exercises logically merges into a solid operation aligned with the company's strategy. The main outcome of this analysis is the definition of a framework that defines the most efficient way to materialize long-term strategic directions as day-to-day operational guidelines, creating an efficiently aligned organization. Efficiency of the planning process will be explored.
The process of exploration planning in the oil and gas industry has historically been time-consuming and inefficient with limited information and large uncertainties to contend with. How does an oil and gas company take a set of exploration opportunities stored in disparate systems across the organization and combine them into a single, optimized forward exploration plan? This paper will examine the current industry processes in exploration planning and compare these with the benefits of an integrated solution with direct links from the subsurface to commercial to identify and track key parameters over time for business planning decision making. This paper will first discuss the industry challenges and current practices in exploration planning. The proposed solution will then be defined as a shared repository of opportunities, consistent capture and quantification of subsurface risk and uncertainty linked with the quantification of potential hydrocarbon recoverable ranges, economic analysis across different fiscal regimes and stochastic portfolio optimization. The paper will then look at optimizing a sample set of exploration opportunities and examine the results and benefits gained after deployment at an integrated national oil company. The integration of risk and uncertainty from the reservoir properties through to stochastic portfolio optimization based on project timing and working interest is a unique solution compared to the "siloed" and disconnected approach common in the industry. During this project, a shared understanding of risk and uncertainty from the subsurface through to the economic evaluation was observed throughout the asset teams and planners. The implementation and execution of the proposed solution improved the efficiency of the exploration decision-making process and the management of the company’s exploration portfolio. Integrated exploration planning leads to significant improved overall portfolio revenue at reduced risk and costs. The proposed solution is applicable to any mid- to large-sized oil and gas company with a number of exploration opportunities to choose from for inclusion in their portfolio. The solution’s value lies in the consistent approach to directly link key risks and uncertainties in the subsurface properties of the reservoir all the way through to the commercial evaluation of a portfolio of exploration opportunities. The result of this approach is optimal decision making and increased efficiencies in exploration business planning due to more thorough understanding and mitigation of key risks and uncertainties affecting the success of exploration opportunities.
The corporate planner in an international petroleum company is faced with the difficult task of comparing potential investment opportunities across different geographic and fiscal regimes. The economics in many global fiscal regimes such as production sharing contracts (PSC) requires advanced modeling capabilities, iterative calculations and consolidated economics at a field or block level for appropriate accuracy. This process can be both computationally intensive and non-linear in nature requiring a recalculation of each proposed portfolio including any delay and working interest factor applied to each project in the portfolio. This paper will review and compare the effects of several typical international fiscal regimes with both traditional project ranking and more modern portfolio management techniques used in the exploration and production (E&P) capital investment process. The ability to use sophisticated optimization algorithms while achieving maximum computational efficiency and economic accuracy will be explored. The effects of stand-alone vs consolidated project economics at a PSC level will be discussed as well as key issues associated with using portfolio management to compare assets in a variety of fiscal regimes. A personal computer will be used to model several typical international fiscal regimes and analyze a set of petroleum assets in the context of choosing an optimal corporate portfolio. Introduction The life cycle of an oil and gas asset can be divided into several sequential steps including geological survey, exploration, development, production and finally abandonment. The process can be complex and very iterative as only limited geotechnical and economic information is readily available at each step. The corporate planner must answer key questions before making the decision to invest capital:What is the best forecast of the recoverable hydrocarbons?Will the revenues and cash flows generated by the project cover all expenditures including any capital investment?What is the effect of the fiscal regime on the magnitude and timing of the cash flow forecast?What is the return on capital employed for the project? To do so successfully, an intimate understanding of the value and uncertainty associated with each phase of the project is required1. Significant advances in computing power and software technologies have allowed corporate planners to model multiple project outcomes and accurately portray complex fiscal regimes. The resulting project data can be used in sophisticated mathematical search and optimization algorithms to generate hundreds of potential feasible portfolios. These portfolios can then be analyzed in the context of meeting strict guidelines for financial (cash flow, earnings per share, return on capital employed) and operational targets (production, reserve replacement, operating costs) while respecting project interdependencies and scheduling constraints. The application of portfolio management techniques has greatly increased the efficiency of the planning process by clarifying the value of each project in terms of project interactions and emphasizing total business performance. The planner will have a better understanding of how each project contributes to a portfolio, what value it adds or risk it mitigates and what the potential downside implications are to the entire business of any investment decision2. One aspect affecting the investment decision is the fiscal regime where the oil and gas asset is being developed. Every system of government tries to attract companies to invest, develop and produce the petroleum reserves in that country. For many oil companies, an important part of the negotiations as a possible partner is to secure terms consistent with the region's near-term and long-term potential and acceptable to the market. Most countries developing petroleum fiscal systems are opting for either a production sharing contract (PSC) or a concessionary regime. Currently, nearly half of the countries with significant petroleum potential have a system based on the PSC3.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.